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June 18, 2013

Boomers Underestimate LTC Cost, Life Expectancy

Pre-retirees prioritize LTC costs in retirement planning, but few have LTCI

The cost of future long-term care for boomers could be more than three times what they're expecting, a consumer survey by Nationwide Financial found.

Boomers 50 and older estimated the future annual cost to be nearly $79,000. However, using data from a 2010 article from Life and Health Advisor, Nationwide found the cost of a nursing home could rise to $265,000 per year by 2030.

For the majority of respondents, “long-term care” means time in a nursing home or assisted living facility, according to the survey, conducted by Harris Interactive.

“Nursing home costs have increased more than 4% annually since 1974,” John Carter, president and chief operating officer of retirement plans for Nationwide Financial, said in a statement. “What a year of nursing home care costs today will not even come close to the actual cost when boomers really need it.”

Nationwide found 27% of long-term care is performed in a nursing home and 24% in an adult day care facility.

When asked to estimate how long they might live after they retire, the average response was nearly 21 years among pre-retiree respondents. Among those who were already retired, the average was just over 27 years.

“Often people who intended to work longer are forced into retirement due to health reasons or employment changes,” Carter said. “Others may not anticipate their own longevity, especially with today’s medical advances. It’s critical that pre-retirees change their current mentality of planning to live 20 years in retirement. Too often, once retired they realize they’re facing 10 or more years of expenses ahead of them that they didn’t plan for.”

Half of respondents aren’t taking into account the likelihood of their spouse surviving them, either, especially women. Two-thirds of men said they had planned for their spouse to outlive them compared with 32% of women.

Further compounding the problem is that even though most respondents said they had a plan for their finances during retirement, nearly 60% said they didn’t account for LTC expenses. Almost two-thirds of respondents said being able to cover LTC expenses was their top priority in retirement planning, more than those who said not outliving their assets was their biggest concern. Just one-quarter of respondents said they had long-term care insurance.